InterContinental to Pay Out $1.5 Billion After Hotel Salesby
Payout takes funds returned to $12 billion since 2003
Hotel industry prospects still 'good' despite uncertainty
InterContinental Hotels Group Plc plans to return $1.5 billion to shareholders in the form of a special dividend after selling hotels in Paris and Hong Kong last year. The shares rose.
The dividend will be paid in the second quarter, the owner of the Holiday Inn and Crowne Plaza brands said in a statement on Tuesday. The company also announced a 10 percent increase in its final dividend to 85 cents per share and said 2015 operating profit before one-time items climbed 4 percent to $680 million. That beat a $674.3 million average estimate by 13 analysts in a Bloomberg survey.
"Despite economic and political uncertainty in some markets, the prospects for the hotel industry remain good and the strength of our business model gives us the confidence to propose a 10% increase in total dividend for the year,” InterContinental Chief Executive Officer Richard Solomons said in the statement.
The stock gained as much as 4.7 percent to 2,570 pence ($36) in London trading.
InterContinental, which has 727,000 rooms in 100 countries, will lose its ranking as the world’s biggest hotel company once Marriott International Inc. completes its acquisition of Starwood Hotels & Resorts Worldwide Inc. later this year. InterContinental, based in Denham, England, is under pressure to join a flurry of transactions in the industry as companies combine to cut costs and compete with online travel agents.
Investors spent $85 billion on hotel deals last year, 50 percent more than in 2014, according to data compiled by Jones Lang LaSalle Inc. InterContinental conducted talks with financial advisers about whether to sell itself or combine with a competitor, people with knowledge of the matter said in November.
The special payout takes the total funds InterContinental has returned to investors since its spinoff in 2003 to $12 billion, according to the statement, as the company sold properties to focus on managing, leasing and franchising hotels instead of owning them. Last year, the company sold the InterContinental Hong Kong for $938 million, and Le Grand hotel in Paris for 330 million euros ($364 million).
The payout is “very positive for the shares,” Berenberg analysts Stuart Gordon and Najet El Kassir wrote in a report. "Given that its asset-light strategy is now complete, we believe that IHG is still seen as a target" to be acquired by a competitor, they wrote.
InterContinental will make acquisitions if it can find businesses that “enhance the portfolio,” Solomons said in an interview with Bloomberg Television on Tuesday. The company is more likely to buy “add-ons” -- similar to its purchase last year of U.S. boutique hotel operator Kimpton Hotels & Restaurants for $430 million -- rather than make major transactions, he said.
InterContinental is benefiting from growing demand for accommodation in regions including the Americas, which account for about half of the company’s sales. Operating profit from that region climbed 9.7 percent to $597 million.
In the fourth quarter, business in U.S. oil-producing states was hurt by the drop in energy prices, InterContinental’s Chief Financial Officer Paul Edgecliffe-Johnson said on a call with reporters. Rooms in those states make up about 14 percent of the U.S. total, and that effect will likely continue in coming months, he said.
InterContinental’s revenue across all its units fell 3 percent to $1.8 billion, largely due to the assets sales, while fee revenue rose 7 percent to $1.3 billion. Adjusted earnings per share gained 10 percent to 174.9 cents.